There are few areas of policy where lawmakers’ shortsightedness is on display as fully as it is with the gasoline tax.  Now, with a series of twenty six new charts from the Institute on Taxation and Economic Policy ( ITEP), you can see the impact of that shortsightedness in most states as shareable graphs.

Overall, state gas taxes are at historic lows, adjusted for inflation, and most states can expect further declines in the years ahead if lawmakers do not act.  Some states, including New Jersey, Iowa, Utah, Alabama, and Alaska, are levying their gas taxes at lower rates than at any time in their history.  Other states like Maryland, Oklahoma, Massachusetts, Missouri, Tennessee, Arkansas, and Wyoming will approach or surpass historic lows in the near future if their gas tax rates remain unchanged and inflation continues as expected.

These findings build on a 50-state report from ITEP released last month, called Building a Better Gas Tax.  ITEP found that 36 states levy a “fixed-rate” gas tax totally unprepared for the inevitable impact of inflation, and twenty two of those states have gone fifteen years or more without raising their gas taxes.  All told, the states are losing over $10 billion in transportation revenue each year that would have been collected if lawmakers had simply planned for inflation the last time they raised their state gas tax rates.

View the charts here, and read Building a Better Gas Tax here.

Note for policy wonks: Charts were only made in twenty six states because the other twenty four do not publish sufficient historical data on their gas tax rates.  It’s also worth noting that these charts aren’t perfectly apples-to-apples with the Building a Better Gas Tax report, because that report examined the effect of construction cost inflation, whereas these charts had to rely on the general inflation rate (CPI) because most construction cost data only goes back to the 1970’s.  Even with that caveat in mind, these charts provide an important long-term look at state gas taxes, and yet another way of analyzing the same glaring problem.

Example:

The Institute on Taxation and Economic Policy (ITEP) made a lot of noise (and news, news,  news) about sales tax holidays during the recent back to school season. Seventeen states offer sales tax holidays. The rules vary widely, but in most cases they mean consumers don’t have to pay sales taxes on back to school supplies, clothes, etc. for a few days. This past August for the first time, Arkansas offered a sales tax holiday of its own.  While the sales tax revenue figures are still coming in, it’s now clear that holiday cost the state about $2.1 million in lost revenues and an additional $710,000 loss in revenues for cities and counties that collect their own local sales taxes.

Naïve state officials hoped to see an increase in sales tax revenue based on the assumption that consumers would go out and purchase more taxable items. Indeed, sales tax holiday proponents often argue that sales tax holidays actually generate new sales tax revenue, as in this report from the Florida Retail Association.

But so far the Arkansas revenue figures aren’t showing much offsetting revenue generated. The Deputy Director of the Department of Finance and Administration, Tim Leathers has admitted they “couldn't detect any increase in consumers spending more money while they were in there buying school supplies." Revenue officials have yet to tally September’s sales tax revenues to see if there were shifts in consumption by month, but either way it seems that the sales tax holiday didn’t provide a real and needed boost for state coffers.

John Shelnutt, an economist with the Department of Finance and Administration said, “If it did shift consumption from month to month, we'll have to see…. Even then, it's not a clear story. We were below forecast for the first two months of the fiscal year, which begins July 1."

Another reason that Arkansas jumped on the sales tax bandwagon was lawmakers’ belief it would lure shoppers from neighboring states to take advantage of the holiday, but again, the numbers don’t show any evidence for this. The economist, Shelnutt, sees no “growth rate to suggest there was a cross-border rush to take advantage of the holiday.”

Myths about the utility of sales tax holidays abound.  Lawmakers too often believe these events are helpful to cash-strapped consumers, result in increased revenues and add out of state dollars to the economy.  But too often, like in Arkansas, the costs to the state as a whole far outweigh the modest benefit a handful of consumers enjoy.

We also know that not collecting sales tax on specific items for just a couple of days does nothing to help make a state’s overall tax structure more fair.  Lawmakers interested in really helping the most hard-pressed families and boosting their states’ economies have other tax reform options that offer long term and widespread benefits. Sales tax holidays, however, are more boondoggle than good policy. For  more on what they do and don’t accomplish, read ITEP’s brief.

Earlier this year, governors in West Virginia and Arkansas signed legislation to lower their states’ sales tax on food, a policy both had championed.  West Virginia lowered the state’s sales tax on food from 3 to 2 percent and Arkansas’ was reduced from 2 to 1.5 percent.

Unlike most states, West Virginia and Arkansas were doing just fine budget-wise, so the tax cut was “affordable” and did not come at the expense of critical and core public services, which are often sacrificed for tax cuts.  Pursuing cuts to food sales taxes also set Mike Beebe (AK) and Earl Ray Tomblin (W.VA) apart from other governors who pushed for regressive tax cuts that primarily benefited upper-income households and businesses.

West Virginia’s Tomblin recently upped the ante, too, asking lawmakers during a special August 2011 session to end the state’s sales tax on food altogether, given the state’s finances were continuing to perform well.  The House and Senate heeded the governor’s request and agreed to phase out the remaining two percent sales tax on food by July 1, 2013. 

The phase-out is contingent on the health of the state’s Rainy Day Fund, which must be equal to or greater than 12.5 percent of the General Revenue Fund at the end of 2012. If that goal is met, the sales tax on food will be reduced to one percent on July 1, 2012 and totally eradicated on July 1, 2013.

While West Virginia’s decision to eliminate the sales tax on food is certainly more beneficial to more families than other states’ efforts to eliminate corporate and personal income taxes, there are smarter, more targeted strategies available to lawmakers seeking to improve the fairness of the sales tax and support working families.

As an updated ITEP brief explains, targeted tax credits are a preferred alternative to exempting products, such as food, from the sales tax base. 

Sales tax exemptions have two main disadvantages as policy. First, they make the sales tax base (that is, the total dollar amount collected from taxable items) much narrower, and reduce the yield of the tax.  Second, they make the exemptions available to all taxpayers, regardless of need or income.  For example, the poorest 40 percent of taxpayers typically receive only about 25 percent of the benefit from exempting groceries while the rest goes to wealthier taxpayers who can more easily afford to pay the grocery tax.

Targeted credits, on the other hand: are designed to apply to specific income groups deemed to be most in need of tax relief; are available only to in-state residents; can be less expensive than exemptions, and; do not affect the stability of the sales tax as a revenue source.

Rather than wholly eliminate the sales tax on food, West Virginia lawmakers could have followed the model of 24 states which have wisely enacted a state Earned Income Tax Credit to ensure the tax cut will primarily benefit low- and moderate-income families, those who need help the most and spend a larger proportion of their incomes on food.  Alternatively, a refundable food tax credit, implemented in Kansas, Oklahoma and Idaho, which helps offset sales taxes paid on food, would be a more preferable policy as it is also 1) targeted to taxpayers who need it most and 2) less disruptive to the state’s revenue – two characteristics of the smartest tax policies.

Photo via Judy Baxter Creative Commons Attribution License 2.0

You may have heard of the "no new taxes" pledge, which is promoted by the extreme anti-government organization, Americans for Tax Reform (ATR), and its leader, Grover Norquist. What you may not know is that the pledge bars lawmakers from allowing voters to choose for themselves whether or not to raise taxes. At least that's the latest word from Norquist, who is apparently the sole adjudicator of the meaning of the pledge.

In Arkansas, four legislators who signed the pledge are defending their vote to allow Arkansans to decide whether to increase the state’s diesel fuel tax by five cents per gallon. There's an argument to be made that legislators really ought to make these types of decisions on their own. After all, isn't that what they're paid to do? But this is not the sort of criticism that Arkansas lawmakers are hearing these days.

Instead, the criticism is coming from Grover Norquist and ATR. Business Week reports that several legislators actually voted against HB 1902 because they feared the wrath of Norquist.

What many lawmakers probably thought was a political gimmick when they signed onto it has clearly become a ridiculous obstacle to rational, representative government, as lawmakers become fixated with the opinions of Norquist rather than the opinions of their constituents.

And it hardly helps policymaking when lawmakers are tied to simple, black-or-white dogmas that they feel forced to carry to any and all extremes. Elected officials are put in office so they can, in the words of one of the legislators taking heat, “consider all bills based upon their individual merits.”

Oklahomans are asking questions about the “no new taxes pledge” as well. Recently Grover Norquist said that Oklahoma policymakers supporting a hospital provider fee would violate the “no new taxes” pledge.

A recent blog post from the Oklahoma Policy Institute (OPI) asks simple, yet important questions. “When lawmakers sign a pledge, who are they working for?... Should they adhere to the dictates of outside groups that always take the most simplistic and extreme stance on their particular issue, regardless of the context for Oklahomans?”

OPI also discusses members of Congress and their controversies concerning ATR's pledge. When Senator Tom Coburn said that he was in favor of eliminating ethanol tax subsidies and using the revenue to pay down the national deficit, Norquist said that this position was in violation of the tax pledge.

Coburn responded, “The pledge to uphold your oath to the Constitution of the United States? Or a pledge from a special interest group who claims to speak for all of American conservatives, when in fact they really don’t?”

As OPI puts it, “Leaders now have a choice: do they represent Grover Norquist, or do they represent Oklahoma?”

In just the last few weeks, Arkansas and Illinois joined New York, North Carolina, and Rhode Island in enacting legislation requiring some online retailers, like Amazon.com, to collect sales taxes on purchases made by their state’s residents.  At least a dozen other states are considering enacting similar policies, and the list of states with a serious interest in this issue seems to be growing by the week.  In a new brief, ITEP explains the basics of so-called "Amazon taxes," and discusses the actions that Amazon, Wal-Mart, Home Depot, and other retailers have taken during this new surge of interest in sales tax reform.

Read the ITEP brief.

Lawmakers in almost every state (44 according to the Center on Budget and Policy Priorities) must close significant budget gaps again this year.  Despite these continuing fiscal woes, a variety of costly tax cuts -- from reductions in corporate tax rates to new capital gains breaks -- have been proposed alongside massive spending cuts in many of these states.

But West Virginia and Arkansas are among the six states not reporting budget gaps this year -- a fact which has provided them with somewhat more flexibility to consider reducing taxes. In this context, both Arkansas and West Virginia lawmakers recently enacted reductions in their states' sales taxes on groceries.  As of July 1, 2011, Arkansas’ sales tax rate on groceries will be lowered from 2 percent to 1.5 percent.  West Virginia’s rate will drop from 3 percent to 2 percent starting January 1, 2012.  These cuts were championed by Governors Beebe and Tomblin as a means to provide immediate assistance to taxpayers (in particular low-income households), and as a way to stimulate their states' economies. 

But reducing the sales tax on groceries is not the most targeted approach available to state lawmakers looking to support working families.  The poorest 40 percent of taxpayers only receive about 25 percent of the benefit from exempting groceries in most cases. The rest goes to wealthier taxpayers who can more easily afford to pay the sales tax on groceries.  Increasing Arkansas’s refundable state Earned Income Tax Credit (EITC) or enacting a state EITC in West Virginia would have been a better targeted alternative for ensuring that the tax cuts would reach low- and middle-income working families.  However, when viewed alongside the sharply regressive and completely unaffordable tax cuts being considered in so many other states, Arkansas and West Virginia lawmakers should receive some credit for at least enacting progressive tax cuts that benefit low- and moderate-income households the most as a share of their incomes.

Last week Illinois joined New York, North Carolina, and Rhode Island by enacting legislation requiring Amazon.com and other online retailers working with in-state affiliates to collect sales taxes.  Arkansas’s Senate and Vermont’s House recently passed similar legislation, and Arizona, California, Connecticut, Hawaii, Minnesota, Mississippi, and New Mexico are considering doing the same.  Interestingly, lawmakers in each of these states are being spurred to do the right thing by major retailers like Wal-Mart, Sears, and Barnes & Noble.

In most states, Amazon and other online retailers are not currently required to collect sales taxes unless they have a “physical presence” in the state, though consumers are still required to remit the tax themselves.  Unfortunately, very few consumers actually pay the sales taxes they owe on online purchases — in California, for example, unpaid taxes on internet and catalog sales are estimated to cost the state as much as $1.15 billion per year.

The so-called “Amazon laws” recently adopted in Illinois, New York, North Carolina, and Rhode Island are all designed to limit this form of tax evasion by broadening the class of online retailers that must pay sales taxes.  Specifically, under these new laws, any retailer partnering with in-state affiliate merchants is required to pay sales taxes on purchases made by residents of that state.

Up until recently, the reaction to these laws has been mostly hostile.  Grover Norquist has branded them a (gasp) “tax increase,” despite the fact that they’re designed only to reduce illegal tax evasion.  More importantly, Amazon has challenged the New York law in court, and has ended relationships with affiliates in North Carolina and Rhode Island in order to avoid having to pay sales taxes on sales made within those states.  Amazon has also promised to severe ties with its Illinois affiliates, and has threatened to do the same in California if a similar law is adopted there.  These tactics mirror a recent decision by Amazon to shut down a Texas-based distribution center in order to avoid having to remit taxes in that state as well.

But Amazon may not be able to bully state lawmakers for much longer.  Since New York passed its so-called “Amazon law” in 2008, North Carolina, Rhode Island, and now Illinois have already followed suit despite all the threats.  And it appears that Arkansas and Vermont may very well do the same — as proposals to enact Amazon laws in each of those states have already made it through one legislative chamber.  In addition, at least seven other states (listed in the opening paragraph) have similar legislation pending.

According to State Tax Notes (subscription required), Wal-Mart, Sears, and Barnes & Noble are each attempting to partner with affiliate merchants recently dropped by Amazon.  Even more importantly, several of the large retail companies (like Wal-Mart, Target and Home Depot) are joining forces to lobby in favor of Amazon laws. These companies’ interest is in large part due to the fact that they already have to remit sales taxes in the vast majority of states because of the “physical presence” created by their large networks of “brick and mortar” stores.  If more traditional retailers begin to voice support for Amazon laws, the progress already being made on this issue is likely to accelerate.

For more background information on the Amazon.com tax controversy, check out this helpful report from the Center on Budget and Policy Priorities.

Some politicians in state capitals across the U.S. seem convinced that tax cuts for businesses and the wealthy are the best way to accelerate economic recovery. In two states, governors are proposing instead to cut taxes on groceries, which is a more effective, though not exactly flawless, way to help ordinary families. The tradeoff to any tax cut, of course, is unaffordable cuts to essential services including education, public safety, and health care.

In Wisconsin, state lawmakers agreed on a business tax cut that would add about $50 million to the budget deficit.  The Republican controlled legislature and newly elected Governor Scott Walker believe that the tax cuts will leave everybody with more money and leave the state with an improved economy.  Incredibly, Walker’s proposal rests on the assumption that the tax cuts will lure businesses away from Illinois, which recently saw an increase in its income tax, rather than fostering young, developing businesses. 

In Iowa, where a similar $300 million business tax cut is being discussed, critics of Governor Terry Branstad point out that essential social services are being axed in favor of pro-business policies.

In Arizona, Governor Jan Brewer is proposing to cut taxes on high-wage industries while further reducing funding for Medicaid, universities, community colleges, and K-12 education.  

Similar tax cuts are being proposed in New York, Washington, Michigan, Minnesota, and South Carolina. All of these plans prioritize tax breaks for business over providing essential services to those most affected by the economic downturn.  

The Governors of West Virginia and Arkansas have arrived at an entirely different tax-cutting proposal: reducing the sales tax on groceries.  Like lawmakers who support business tax cuts, Governors Tomblin and Beebe believe their brand of tax cuts will circulate quickly throughout the economy, providing necessary relief to the taxpaying public while stimulating the economy. 

Governor Mike Beebe of Arkansas wants to cut the sales tax on groceries by a half-cent and has said it is the only tax cut he will consider this year.  In West Virginia, Governor Earl Ray Tomblin wants to reduce the grocery sales tax from 3 to 2 cents and would ultimately like to see it eliminated entirely.

While the proposals to cut the sales tax on groceries are a welcome development compared to proposed tax cuts for businesses and the wealthy, there are still two problems with them. 

First and foremost, states are in dire need of revenue this year as they face the most significant budget challenge yet since the start of the recession.  Every dollar lost to a tax cut will have to be made up by an even deeper cut in spending. 

Second, reducing the sales tax on groceries is not the most targeted approach available to state leaders looking to support working families.  The poorest 40 percent of taxpayers typically receive only about 25 percent of the benefit from exempting groceries. The rest goes to wealthier taxpayers who can more easily afford to pay the sales tax on groceries. 

Enacting or increasing a refundable state Earned Income Tax Credit (EITC) or other low-income refundable credit would be a more affordable and better targeted alternative to ensure that tax cuts reach low- and middle-income working families.  Tax cuts that directly benefit low-wage workers are especially beneficial to the general economy because low-wage workers immediately spend their refunds out of necessity.  By pumping the money back into the economy, the tax cut goes further in stimulating the economy than tax cuts for the wealthy or businesses.

Instead of pursuing tax cuts for businesses and wealthy individuals, state lawmakers should be working to alleviate hardship on the most vulnerable.  Indeed, the governors in West Virginia and Arkansas may end up being much more efficient at helping their state economies rebound than the “business friendly" governors in Wisconsin and Iowa.

Earlier this week ITEP released A Capital Idea: Repealing State Tax Breaks for Capital Gains Would Ease Budget Woes and Improve Tax Fairness. The report takes a hard look at the eight states that currently give special treatment to capital gains income including: Arkansas, Hawaii, Montana, New Mexico, North Dakota, South Carolina, Vermont, and Wisconsin.

The report finds that the benefits of state capital gains tax breaks go almost exclusively to the very best off taxpayers. In fact, in the eight states highlighted, between 95 and 100 percent of the state tax cuts from these tax breaks goes to the richest 20 percent of taxpayers.

Capital gains tax breaks also come with a pretty large price tag.  In tax year 2010, these eight states will lose about $490 million due to these loopholes, with losses ranging from $14 million to $151 million per state. These revenue losses represent a substantial share of currently-forecast budget deficits in several of these states.

ITEP finds that these preferences are costly, inequitable, and ineffective, depriving states of millions of dollars in needed funds, benefitting almost exclusively the very wealthiest members of society, and failing to promote economic growth in the manner their proponents claim. State policymakers cannot afford to maintain these tax breaks any longer.

Trouble is brewing in Arkansas. Tax fairness advocates are anticipating that legislation to further reduce the amount of taxes paid on capital gains income will be a hot issue in the upcoming legislative session. Arkansas Advocates for Children and Families (AACF) released a brief this week explaining that Arkansas already offers a 30 percent exclusion for capital gains income and is one of only eight states that offers a substantial tax break for capital gains.

CTJ and ITEP have long argued that all types of income, including capital gains, should be taxed in the same way. Providing special breaks for capital gains is regressive, in addition to making tax rules needlessly complicated. Most low- and middle-income families don't have any capital gains income and therefore don't benefit from this tax break.

The AACF brief cites ITEP data and explains, “For 2010, the poorest 80 percent of Arkansas taxpayers (those with incomes less than $71,000) are projected to earn only 2 percent of the capital gains income earned by the state’s taxpayers. In contrast, the top 1 percent of Arkansas taxpayers, those with incomes of $352,000 or more, will likely earn 75 percent of all capital gains income in Arkansas.”

Further enhancing the already generous exclusion would benefit well off Arkansans, cost the state valuable revenues, and certainly do nothing to improve tax fairness. For more on capital gains taxation in the states, see ITEP’s report on this issue.

Good Jobs First (GJF) released three new resources this week explaining how your state is doing when it comes to letting taxpayers know about the plethora of subsidies being given to private companies.  These resources couldn’t be more timely.  As GJF’s Executive Director Greg LeRoy explained, “with states being forced to make painful budget decisions, taxpayers expect economic development spending to be fair and transparent.”

The first of these three resources, Show Us The Subsidies, grades each state based on its subsidy disclosure practices.  GJF finds that while many states are making real improvements in subsidy disclosure, many others still lag far behind.  Illinois, Wisconsin, North Carolina, and Ohio did the best in the country according to GJF, while thirteen states plus DC lack any disclosure at all and therefore earned an “F.”  Eighteen additional states earned a “D” or “D-minus.”

While the study includes cash grants, worker training programs, and loan guarantees, much of its focus is on tax code spending, or “ tax expenditures.”  Interestingly, disclosure of company-specific information appears to be quite common for state-level tax breaks.  Despite claims from business lobbyists that tax subsidies must be kept anonymous in order to protect trade secrets, GJF was able to find about 50 examples of tax credits, across about two dozen states, where company-specific information is released.  In response to the business lobby, GJF notes that “the sky has not fallen” in these states.

The second tool released by GJF this week, called Subsidy Tracker, is the first national search engine for state economic development subsidies.  By pulling together information from online sources, offline sources, and Freedom of Information Act requests, GJF has managed to create a searchable database covering more than 43,000 subsidy awards from 124 programs in 27 states.  Subsidy Tracker puts information that used to be difficult to find, nearly impossible to search through, or even previously unavailable, on the Internet all in one convenient location.  Tax credits, property tax abatements, cash grants, and numerous other types of subsidies are included in the Subsidy Tracker database.

Finally, GJF also released Accountable USA, a series of webpages for all 50 states, plus DC, that examines each state’s track record when it comes to subsidies.  Major “scams,” transparency ratings for key economic development programs, and profiles of a few significant economic development deals are included for each state.  Accountable USA also provides a detailed look at state-specific subsidies received by Wal-Mart.

These three resources from Good Jobs First will no doubt prove to be an invaluable resource for state lawmakers, advocates, media, and the general public as states continue their steady march toward improved subsidy disclosure.

This week the Arkansas Legislative Task Force on Reducing Poverty and Promoting Economic Opportunity released thirty-one recommendations for reducing poverty in the state. Rich Huddleston, co-chair of the task force and Executive Director of Arkansas Advocates for Children and Families said, "Poverty hurts individual Arkansans, but it also has a long-term impact on our economy. Our businesses need a healthy, educated work force. To get there, we need to ensure that our children are in good shape and get a quality education." 

Not surprisingly, the panel found that tax policy has a role to play in poverty reduction. The panel recommended a variety of policy changes including: creating a state Earned Income Tax Credit, fixing the Arkansas low-income tax threshold, and continuing efforts to cut the state sales tax on food. See the panel’s full recommendations here.

Arkansas, of course, is not alone in having sensible options for using the tax code to reduce poverty. To read about more effective anti-poverty strategies in your state, read ITEP’s report: Credit Where Credit is (Over) Due.

On Tuesday, voters in 37 states went to the polls to vote for Governor. The results of nine gubernatorial races provide a small glimmer of hope for sensible, balanced, and progressive approaches to addressing the next round of state budget shortfalls.  Two candidates campaigned on raising taxes, four incumbents were re-elected after implementing new taxes to close previous budget gaps, and three governors-elect won races against opponents who sought to dismantle progressive tax structures.

As for those governors-elect who have rejected revenue increases, the next four years will be quite a challenge. In Texas, Governor Rick Perry will face a projected two-year $21 billion budget shortfall.  Likewise in Pennsylvania, Governor-elect Tom Corbett is staring at a $5 billion budget deficit next year.  Faced with these problems, this new crop of state executives can take either a dogmatic cuts-only approach or they can opt for a more flexible approach that allows for raising new revenue by closing tax loopholes or implementing other reforms.

Candidates Who Campaigned on Raising Taxes

In Minnesota, Mark Dayton ran for governor on a progressive tax platform, calling taxes “the lubricant for the machinery of our democracy." He has proposed increasing taxes on the wealthiest 5 percent of Minnesotans to raise revenue to address the state’s continuing budget woes and to improve tax fairness.  Although the Minnesota gubernatorial race remains undecided and Dayton may face a recount, Dayton’s small lead demonstrates the support he has received for purposing such a beneficial progressive tax plan.

In Rhode Island, Lincoln Chafee won a three-way race against Republican John Robitaille and Democrat Frank Caprio.  Like Dayton, Chafee championed tax increases aimed at refilling the state’s depleted coffers.  During the campaign Chafee, whose father lost a Rhode Island gubernatorial race 42 years ago after supporting a state income tax, proposed a one percent sales tax on previously exempted items.  Though more likely to adversely affect low-income families than Dayton’s plan, Chafee deserves credit for supporting a moderate tax plan in this cycle of anti-government sentiment.

Candidates Who Defeated Opponents Targeting Progressive Tax Structures

Besides Dayton and Chafee, three other winners on Tuesday night defeated opponents who sought to drastically cut taxes and reduce spending and government services.  In California, Jerry Brown defeated Meg Whitman, who supported a regressive tax cut that would only benefit taxpayers who claim capital gains income. 

In New York, Andrew Cuomo defeated Carl Paladino, who promised to cut taxes by 10 percent and spending by 20 percent in his first year.  Unfortunately, however, Andrew Cuomo has not fully distanced himself from Paladino’s vilification of taxes.  Instead, Cuomo, along with eleven newly elected Republican Governors, has pledged to freeze taxes, vetoing any hike that comes his way.  This absolutist approach does nothing to alleviate the enormous deficit problems faced by each of these states.

In Colorado, Democrat John Hickenlooper defeated Republican Dan Maes and Independent Tom Tancredo.  Maes, who lost voter support after the Republican primary, promised to lower income taxes and cut spending.  As Maes’ popularity decreased, Tom Tancredo began to gain steam, eventually garnering around 37% of the vote.  In their final debate Tancredo proposed removal of “any tax rebates or incentives.”  For his own part, Hickenlooper never committed to raising or lowering taxes, but did call for a "voluntary" tax on the oil and gas industry to fund higher education.

Incumbents Re-elected After Raising Taxes

The Governors of Maryland, Illinois, Arkansas, and Massachusetts pulled off victories after enacting or supporting new taxes during their previous terms. 

In Maryland, Martin O’Malley, who defeated former Governor Robert Ehrlich, oversaw tax increases in his first term to fix a $1.7 billion deficit.  O’Malley’s plan relied in part on progressive tax increases, including a temporary increase in the income tax rate paid by millionaires. While Republicans criticized the tax increases, the citizens of Maryland approved enough to re-elect O’Malley with over 55% of the vote.

In Illinois, Governor Pat Quinn is the likely winner of a tight race against Republican challenger Bill Brady.  Since becoming Governor in the wake of former Governor Blagojevich’s scandal, Pat Quinn has repeatedly proposed to raise income tax rates to fill budget holes.  Quinn would use the revenue raised to fund education.  Meanwhile Brady, Quinn’s opponent, championed tax cuts that included repealing the sales tax on gasoline and eliminating the inheritance tax.

In Arkansas, Republican Jim Keet was soundly defeated by Governor Mike Beebe in his re-election bid.  During his first term, Beebe implemented a significant hike in tobacco sales taxes, raising the tax on a pack of cigarettes by 56 cents.  The increase was designed to increase revenues by $86 million to fund statewide trauma systems and expanded health care coverage for children.

In Massachusetts, Deval Patrick was re-elected Governor after signing last year’s budget that included an increase in the sales tax rate. Patrick also showed interest in improving fairness in Massachusetts’ tax code. Bay State voters rewarded Patrick for his tough decisions by handily re-electing him.

ITEP’s new report, Credit Where Credit is (Over) Due, examines four proven state tax reforms that can assist families living in poverty. They include refundable state Earned Income Tax Credits, property tax circuit breakers, targeted low-income credits, and child-related tax credits. The report also takes stock of current anti-poverty policies in each of the states and offers suggested policy reforms.

Earlier this month, the US Census Bureau released new data showing that the national poverty rate increased from 13.2 percent to 14.3 percent in 2009.  Faced with a slow and unresponsive economy, low-income families are finding it increasingly difficult to find decent jobs that can adequately provide for their families.

Most states have regressive tax systems which exacerbate this situation by imposing higher effective tax rates on low-income families than on wealthy ones, making it even harder for low-wage workers to move above the poverty line and achieve economic security. Although state tax policy has so far created an uneven playing field for low-income families, state governments can respond to rising poverty by alleviating some of the economic hardship on low-income families through targeted anti-poverty tax reforms.

One important policy available to lawmakers is the Earned Income Tax Credit (EITC). The credit is widely recognized as an effective anti-poverty strategy, lifting roughly five million people each year above the federal poverty line.  Twenty-four states plus the District of Columbia provide state EITCs, modeled on the federal credit, which help to offset the impact of regressive state and local taxes.  The report recommends that states with EITCs consider expanding the credit and that other states consider introducing a refundable EITC to help alleviate poverty.

The second policy ITEP describes is property tax "circuit breakers." These programs offer tax credits to homeowners and renters who pay more than a certain percentage of their income in property tax.  But the credits are often only available to the elderly or disabled.  The report suggests expanding the availability of the credit to include all low-income families.

Next ITEP describes refundable low-income credits, which are a good compliment to state EITCs in part because the EITC is not adequate for older adults and adults without children.  Some states have structured their low-income credits to ensure income earners below a certain threshold do not owe income taxes. Other states have designed low-income tax credits to assist in offsetting the impact of general sales taxes or specifically the sales tax on food.  The report recommends that lawmakers expand (or create if they don’t already exist) refundable low-income tax credits.

The final anti-poverty strategy that ITEP discusses are child-related tax credits.  The new US Census numbers show that one in five children are currently living in poverty. The report recommends consideration of these tax credits, which can be used to offset child care and other expenses for parents.

Earlier this summer the Census Bureau released data that revealed which states can be considered "low tax" states. We took a closer look at the data and found that while a handful of states could be considered low tax states overall, their taxes are not low for poor and middle-income families.

In fact, in six states — Arkansas, Arizona, Florida, Tennessee, Texas, and Washington — there is a fundamental mismatch between the Census data and how these supposed low tax states treat people living at or near the poverty line. One of the major reasons for this is that these states have largely unbalanced tax structures. Florida, Tennessee, Texas, and Washington rely heavily on property and sales taxes because they don't have a broad-based personal income tax. (For more on a Washington ballot initiative to introduce an income tax, see our Digest article below.) Despite having income taxes, Arkansas and Arizona rely heavily on sales taxes, thus making their tax structures balanced on the backs of low- and middle-income taxpayers.